Spanish company will start a court-supervised reorganization amid R$1.1bn debt, seeks to prevent blocking of funds

03/22/2024

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Sébastien Durchon — Foto: Claudio Belli/Valor

The DIA supermarket chain, which filed for court-supervised reorganization on Thursday (21), wants to prevent Daycoval from blocking its funds. The Spanish company claims that the bank is refusing to release the retailer’s resources. The bank declined to comment on transactions involving clients.

In the early hours of Thursday (21), the retailer filed the petition with the 1st Bankruptcy Court of São Paulo, due to a debt of R$1.1 billion. Of this total, R$986.5 million are unsecured debts with suppliers and factoring of receivables with banks.

Until early Thursday (21) evening, the court had not granted the retailer’s request. DIA is represented by the Galdino & Coelho, Pimenta, Takemi, Ayoub Advogados law firm, while Alvarez & Marsal is a financial adviser.

The debt with Daycoval reaches R$61.7 million (without guarantees), of which R$23 million can be redeemed, in a Certificate of Bank Deposit (CDB) line, as the retailer informed in the process.

The chain also asks that a daily fine be defined if Daycoval insists on not releasing the funds. Santander is the largest financial creditor in a list that also includes Banco do Brasil besides Daycoval. DIA’s debt with banks totals R$268 million.

In addition, the company also asked the court to authorize the sale of the 343 stores that are in the process of closing, out of the total 587 existing units earlier this year, for future settlement of liabilities. The remainder 244 stores will remain open. The retailer operates leased points of sale.

But the idea is to get the right to sell the businesses, which would be possible in the case of long-term retail contracts. Of the total 334 closures, 33 are franchises and the remainder are leases of company-owned stores. Three of the four distribution centers will be closed, and only the one in Osasco (in the greater São Paulo area) will be maintained.

The crisis already affects the company’s partners. DIA has returned the Mauá (São Paulo) distribution center, which involves a lease agreement with FII VBI Logístico, with the February lease outstanding, according to a person familiar with the matter.

The group also seeks solutions such as finding a financial partner or selling the chain as a whole. According to a source, the issue remains on the table, but the main idea would be to “fix” the company first, and then search for buyers.

Valor found that representatives from Lazard’s consultancy have already offered the company to cash-and-carry chains, supermarkets, and even online retailers with a focus on durable goods.

As Valor reported on Thursday (21), the chain has been trying to negotiate with investment funds, but the high debt is an obstacle. In addition, the parent company is not willing to inject capital into the business and reduce liabilities before the sale.

In the filing, DIA says it is looking for an investor to provide funds to revamp stores. Creditors see little chance of this plan moving forward at the moment.

The crisis at the company is a reflection of a sharp drop in sales volumes in recent years, food deflation (which reduces prices and compromises revenue), increased debt with rising interest rates, and mistaken strategic decisions.

There was also a direct effect of the expansion of the cash-and-carry segment, a direct competitor of DIA because of low prices. The chain lost 20% of foot traffic from 2021 to 2023

Regarding the unsuccessful internal measures, the company admits, in the document sent to court, that it decided to lower prices to compete with cash-and-carry stores in recent years. But that didn’t work as expected. “[There was] a dramatic reduction in EBITDA from 2021 onwards, which became increasingly negative, at R$316.5 million in 2023.”

In the last 18 months, sales dropped 25% amid falling demand, making the retailer’s situation “unsustainable,” CEO Sébastien Durchon told Valor on Wednesday (20).

“It may seem brutal, but only 60% of the revenue DIA had estimated from franchises was confirmed in 2023,” he said. Furthermore, the franchises failed to honor payments for products acquired from the company, which supplies the stores.

In the filing, the company’s lawyers requested a stay period, a type of shielding phase, in which the effects of bankruptcy protection are brought forward from the moment the suit is filed.

In 2023, DIA posted a net revenue of R$3.9 billion, and for this year, it is estimated at R$2.5 billion, considering the effects of the reduction in the number of stores.

The company has 5,500 direct employees in Brazil and will maintain only 2,000 employees after the current restructuring and closure of 343 stores. The focus is to have the request accepted by the court and put together the reorganization plan within 60 days, which is the deadline defined by law.

Assembling the plan involves aligning negotiations with suppliers to avoid shortages and with franchisees so that the franchises are kept in operation amid the crisis.

*Por Adriana Mattos — São Paulo

Source: Valor International

https://valorinternational.globo.com/